CANBERRA, Sept 24 (Reuters) - Australia's defence department said on Thursday it would not support a Chinese magnetite resource investment on sensitive security ground within the Woomera missile range.

A joint venture between Wugang Australia Resources, a wholly-owned subsidiary of state-owned Wuhan Iron and Steel (600005.SS), and Australia's Western Plains Resources (WPG.AX), would "not be compatible with defence's activities at the Woomera Prohibited Area on safety, operational and national security grounds," the department said.

It is the second time this year that the centre-left government has blocked an application by China to operate within the Woomera Prohibited Area, an area the size of England, and followed rejection of China Minmetals's $2.26 billion takeover bid for OZ Minerals.

Under the planned investment, Wuhan would receive 12.1 million Western Plains shares and a 50 percent stake in the project for a A$45 million ($39 million) investment and feasibility study on developing Western Plains' magnetite deposits, located 180 kilometres from the Woomera testing range.

Defence Minister John Faulkner said the decision by his department was not because it was Chinese in origin, but because the proposal concerned the most sensitive and dangerous part of the Woomera area.

"The difficulty here in relation to this proposal is its location," Faulkner told state radio.